Q3 2020 Landmark Bancorp Inc Earnings Call
Good day and welcome to the landmark Bancorp Q3 earnings call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Star then zero. Okay. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Michael Schaffner. Please go ahead.
Thank you and good morning.
Thank you for joining our call today to discuss landmarks earnings and results of operations for the third quarter and year to date 2020, joining.
Joining the call with me to discuss various aspects of our third quarter performance as Mark Herpich, Chief Financial Officer of the company.
Before we get started I would like to remind our listeners that some of the information we will be we will be providing today.
I was under the guidelines for forward looking statements as defined by the Securities and Exchange Commission.
As part of these guidelines I must point out that any statements made during this presentation that discuss our hopes beliefs expectations or predictions of the future are forward looking statements.
Actual results could differ materially from those expressed.
Additional information on these factors is included from time to time in our 10-K, and 10-Q filings, which can be obtained by contacting the company or the FCC.
With respect to our 2023rd quarter performance, we reported net earnings of $5.4 million or $1.20 cents per share on a fully diluted basis. This represented a record quarter for the company.
Year to date net earnings totaled $13.9 million.
Our third quarter earnings benefited from an increase of $2.9 million in gains on sales of loans as the continued low mortgage interest rate environment drove an active housing market in refinance activity.
In addition, we continued a strategic liquidation of our higher coupon mortgage backed investment securities based on the market conditions, resulting in a $678000 gain on sale of investments.
As a result of continued economic uncertainty surrounding the impact of COVID-19 on our loan portfolio as well as year to date net loan growth. We recorded a 1 million dollar provision for loan losses in the third quarter, which brings our year to date provision to $2.6 million.
Year to date in 2020, our return on average assets calculates to 1.71 per cent in return on average equity was 16.19%.
Landmarks COVID-19 pandemic response plan remains in place and continues to be focused foremost on the safety and well being of our customers and associates.
In this period of unprecedented economic uncertainty, we supported our customers with loan modifications and access to funding through the small business administration Paycheck protection program.
As of September 32020, we assisted 1095 customers in securing approximately $131 million of PPP funding with an average loan size of $120000.
We are currently actively working with these borrowers as they navigate the SBA loan forgiveness process.
We're also pleased to report the COVID-19 loan modifications have declined significantly with most of our borrowers returning to their loan contracted terms.
We believe landmarks risk management practices liquidity and capital strength continue to position us well to meet the financial needs of families and businesses across Kansas during this challenging time.
I am pleased to report that our board of directors has declared a cash dividend of 20 cents per share to be paid November 25, 2020 to shareholders of record as of November 11 2020.
This represents the 77th consecutive quarterly cash dividend since the Companys formation, resulting from the merger of landmark Bancorp Inc. with it wouldnt be bancshares economic Tobar 2001.
The board also declared a 5% stock dividend to be issued December 16th 2020 to shareholders of record on December 2nd 2020. This.
This represents the twentyth consecutive year. The board has declared a 5% stock dividend. It continued demonstration of our long term commitment to support growth in value and liquidity for our shareholders.
Before I turn the call over to Mark I want to take this opportunity to express my thanks, and appreciation to all of the associates at landmark National Bank.
It has been an entire team effort.
Each of these associates have taken their role as part of the nation's critical infrastructure sector seriously.
Im proud of the way that they have responded.
They have focused daily on executing our strategies delivering extraordinary service to our clients and carrying out our company vision that everyone starts as a customer and leaves as a friend.
I will now turn the call over to Mark Herpich, Our CFO, who will review the financial results and asset quality indicators with you.
Thanks, Michael and good morning to everyone.
Michael mentioned, our record net earnings for the third quarter and nine months ended September Thirtyth 2020, and now I would like to make a few comments on various elements comprising those results.
Starting with highlights of the third quarter income statement net interest income was 9.3 million, an increase of 1.6 million or 21% in comparison to the prior years third quarter.
The improvement in net interest income built upon a $136.9 million or 15% increase in average interest, earning assets to $1.048 billion in comparison to the prior year third quarter period.
This growth was entirely attributable to loan growth of 191.2 million or 36.1% as our average investment balance actually declined by 73.3 million.
The loan growth was impacted significantly by our SP, a PPP loans, which totaled 131.0 million.
At September Thirtyth.
In addition, landmark's net interest margin on a tax equivalent basis improved to 3.6% in the third quarter of 2020 as compared to 3.44% in the same period of 2019.
The net interest margin benefited significantly from the increase in average loan balances as our asset allocation continues to be weighted more heavily to loans and less to investments as a proportion while our overall cost of interest bearing liabilities declined from 1.1% in the third quarter of 2019 two.
0.27% in the current quarter.
Our loan to deposit ratio increased 76% as of September Thirtyth 2020, as compared to 33.7% as of December 31 2019.
Looking at our provision for loan losses, our analysis resulted in providing $1 million the allowance for loan losses in the third quarter of 2020 as compared to 400000 in the third quarter of 2019.
On a year to date basis as Michael mentioned earlier, our 2020 provision for loan losses is $2.6 million in comparison to 1 million in the first nine months of 2019.
The provision for loan losses on loans reflects loan growth and our best estimate of the economic environment, considering the effects of COVID-19.
As the economic outlook involved than our pandemic related loss experience develops we will adjust our allowance for credit losses and provisioning accordingly.
Noninterest income increased $8.2 million for the third quarter of 2020 compared to 4.6 million for the same period of 2019.
The primary driver of the increase in noninterest income was related to a 2.9 million increase in gains on sales of loans relating to the increased volumes of one to four family real estate loans originated for sale at the low interest rate environment has driven up purchase and refinancing Avenue activity in our markets during the third quarter of 2000.
Morning.
Also contributing to this increased level of noninterest income was 678000 of gains on sales of investment securities. As we sold 13.7 million of higher coupon mortgage backed securities during the third quarter of 2020 after comparing market price to the risks of accelerating prepayment speeds.
Noninterest non interest expenses increased by 904000 or 10.5% to 9.5 million in the quarter compared to the third quarter of 2019. This.
This was driven by an increase of 881000 in compensation and benefits primarily related to our increased mortgage loan volumes and to a lesser extent by our commercial loan growth as we added employees in.
In this area over the past year and by general increased compensation costs.
The effective tax rate was 21.5% in the current quarter up from 18.2% in the third quarter of 2019.
The increase in the effective tax rate in the current quarter compared to the same quarter last years, mostly due to an increase in pre tax earnings while our tax exempt income declined over the comparable periods.
Moving on to discuss some financial highlights for the first nine months of 2020.
Our net earnings of $13.9 million represented a record nine month period for landmark and exceeded the comparable period of 2019 by 6.5 million.
These results were driven by our improvement in net interest income of $4 million as compared to the first nine months of 2019.
2.4 million in investment Securities gains and a 6.0 million increase in gains on sales of mortgage loans as a result of the significant drop in interest rates during 2020.
In the first nine months of 2020 net interest income grew to $26.4 million and eight up 18.1% from a year earlier as a result of average interest earning assets, increasing 9.9% from $898.5 million during the first nine months of 2019.
To $987.4 million during 2020.
Consistent with my comments earlier on the third quarter net interest margin benefited significantly from a 136.2 million increase in average loan balances.
78.1 million of which was related to DPP loans.
On a comparable nine month period basis, resulting in our net interest margin on a tax equivalent basis, improving from 3.43% in the first nine months of 2019% to 3.6% in the corresponding period of 2020.
Noninterest income totaled $20.5 million for the first nine months of 2020.
Increase of $8.7 million.
Well, let me 3.7% from the prior year period. This resulted primarily from an increase of $6 million in gains on sales of loans and $2.6 million in gains on sales of investment securities. As we sold approximately 61 million of our higher coupon mortgage backed investment securities. During the first nine months of 2000.
20.
These sales were based on our evaluation of the risks associated with accelerating prepayment speeds to the market prices on this portion of our investment portfolio.
Looking at non interest expense, we reported an increase of 10% or $2.4 million for the first nine months of 2020 in comparison to the same period of 2019.
Consistent with my third quarter comments. This increase primarily relates to a 2.3 million increase in comp and benefits related to our increased mortgage loan volumes.
And to a lesser extent, our commercial loan growth over the past year as we added employees in this area and general increased compensation costs.
The effective tax rate increased from 16.2% in the first nine months of 2019 to 20.8 in the first nine months of 2020.
Mostly due to an increase in pre tax earnings while our tax exempt income declined over the comparable period.
To touch on a few balance sheet highlights total assets increased 150.5 million to 1.1 billion.
At September Thirtyth 2020, compared to $998.5 million at December 31, 2019.
Our loan portfolio was the driver of our increase in total assets as loans increased 196.0 million to $728.2 million at September Thirtyth 2020 from $532.2 million at year end 2019.
While our investment securities.
Decreased 62.1 million to $304.0 million at September Thirtyth 2020 from Sixthree hundred 66.1 million at December 31, 2019.
Deposits increased $122.9 million.
To $957.9 million at September Thirtyth, 2020, compared to 835.0 million at year end 2019.
Additionally, our federal home loan bank and other borrowings increased $7.9 million to 50.1 million at September Thirtyth 2020, compared to 42.2 million at December 31 2019.
Stockholders' equity increased to 121.9 million at September Thirtyth, 2020 rig book value of $27 in two cents per share.
Up from 108.6 million at December 31, 2019.
Or a book value of $23.62 per share.
The increase in book value was primarily result of net earnings and an increase in the fair value of available for sale investment Securities.
Which were offset by our purchased $2.3 million worth of shares of our outstanding stock during the first nine months of 2020.
Our consolidated and bank capital ratios as of September Thirtyth 2020 continue to exceed the levels considered well capitalized the bank's leverage capital ratio was 10.2%.
September Thirtyth 2020, while the total risk based capital ratio was 16.9%.
I would now like to provide some additional details on asset quality in our loan portfolio.
As I mentioned earlier that loans outstanding as of September Thirtyth, 2020 totaled $728.2 million of which PPP loans comprised $131.0 million.
Nonperforming loans, which primarily consist of loans greater than 90 days past due totaled $6.3 million or 0.86% gross loans as of September Thirtyth 2020.
This represents an increase from year end 2019 levels of $5.5 million or 1.03% of gross loans.
Our credit risk and collection efforts continue to focus on reducing these totals.
Another indicator, we monitor as part of our credit risk management efforts is the level of loans past due 30 to 89 days.
The level of past due loans between 30, and 89 days still accruing interest totaled $3.7 million or 0.50% of gross loans as of September Thirtyth 2020.
This ratio has decreased from 0.64% of gross loans as of December 31, 2019, as we continue to monitor delinquency trends carefully in all loan categories.
Our balance and other real estate owned totaled 1.5 million as of September Thirtyth.
The other real estate owned balances are being marketed for sale.
We recorded net loan charge offs of 701000 during 2020 up from 486000 for the same period in 2019.
I will now turn the call back over to Michael to review, our loan portfolio segments, and the credit risk outlook for the company.
Thank you for your comments Mark as Mark noted net loans outstanding as of the end of the third quarter 2020 totaled $728.2 million. This is a 36.8% increase from our year end 2019 that loan total of 532.2 million.
Pp loans made up 131 million of the net loan total year to date commercial loan growth, excluding the PPP volume $65 million or 12.2%.
As of September 32020, our construction and land loan portfolio balances totaled $28 million or 3.8% of our total loan portfolio.
Outstanding loan balances in our commercial real estate portfolio totaled $154.8 million, representing 20.9% of our total loan portfolio.
Construction and industrial loans were 268.3 million as of September 30 were 36.3% of the portfolio. This includes the $131 million in PPP loans.
With regard to our agricultural loan portfolio total balances were $99 million or 13.4% of our total loan portfolio as of the end of the third quarter.
And our mortgage one to four family loan portfolio represented 22% for the portfolio as a 162 at $162.3 million as of September 32020.
As I noted in my opening comments, our mortgage banking activity. During this year has been extremely strong driven by historically low rates as of the end of September 2020, our single family loan production totaled approximately $328.3 million production volume has been equally split this year 50 per.
She said purchase money transactions versus 50% refinance activity.
Our mortgage pipeline levels remain elevated and we anticipate significant production volumes extending through the end of this year.
As previously noted we recorded a $2.6 million provision for loan losses. During the first three quarters of this year based on the continued economic uncertainty surrounding the impact of COVID-19 on our loan portfolio as well as year to date net loan growth, we may need to make additional increases to our provision for loan losses in future.
Periods.
In addition to the ESB efforts that I noted, we actively worked with clients on a case by case basis related to payment deferrals or loan modifications.
These solutions were specific to our clients' capital and liquidity needs.
As of September 30, we have provided modifications to 33 loans, representing $22.9 million. Additionally, as of the same date fully three borrowers with aggregate loans outstanding of $6.8 million for granted a second deferral.
As of September 32020, 107 loans with outstanding balances of $35.7 million had reached the end of their deferral periods and returned to their respective contractual payment terms.
Consistent with the cares act and regulatory guidance. The company also entered into short term forbearance plans in short term repayment plans on eight one to four family residential mortgage loans totaling $982000 as of September 32020.
Before we go to questions I want to summarize by saying 2020 has contains some very positive operating results for landmark.
We believe that the company's risk management practices and capital strength position us well as we navigate these uncertainty economic times.
With that I'll open the call up to questions that is that anyone might have.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question. That's been a trust me I would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
As there are not not currently any questions. This concludes our question and answer session I would like to turn the conference back over to Michael Shatner for any closing remarks, Thank you and I want to thank everyone.
For participating in todays earnings call.
Appreciate your continued support and confidence in the company and I look forward to sharing news related to our year end 2020 results at our next earnings conference call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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